M&S faces long road to recovery as Christmas sales fall

LONDON (Reuters) - Britain’s Marks & Spencer endured another quarter of falling sales in both clothing and food, underscoring what looks set to be a long and uncertain road to recovery.

A Marks and Spencer branded lorry is seen parked for a store delivery in London, Britain, January 10, 2019. REUTERS/Toby Melville

The 135-year-old mainstay of Britain’s shopping streets on Thursday reported a worse-than-expected fall in underlying clothing and homeware sales in the key Christmas quarter, though a decline in food sales was not as bad as analysts’ feared.

Marks & Spencer (M&S) said its latest turnaround plan, launched just over a year ago, was on track, with “encouraging signs,” and it kept its full-year guidance. Its shares, down 12 percent over the last year, were up 0.6 percent at 0854 GMT.

“We’ve got a huge raft of initiatives that we’re executing and what our investors want to hear is that we’re doing them on time, on schedule, on budget and that’s what we’ve (done) this year,” Chief Executive Steve Rowe told reporters

“Our top line numbers are where we expected to be, given the stage we’re at in our transformation.”

He highlighted online sales growth of 14 percent in clothing and homewares and a rise in the number of food items sold in some categories as lower prices are introduced.

After over a decade of failed reinventions, M&S’s latest plan was launched shortly after retail veteran Archie Norman joined as chairman to work alongside Rowe, who has been with the company for almost three decades and became CEO in 2016.

M&S is now targeting sustainable, profitable growth in three to five years by shutting weaker stores, re-shaping its clothing and food businesses, cutting costs and investing in technology.

It had warned in November sales were unlikely to improve any time soon, highlighting intense online competition and the march of the discounters.

FALLING SALES

M&S said same-store clothing and homewares sales fell 2.4 percent in the 13 weeks to Dec. 29 - worse than analysts’ mean forecast for a fall of 1.6 percent and a second quarter drop of 1.6 percent.

Rowe refused to be drawn on when he thought M&S would return to underlying sales growth. “We’ve got to make sure that we don’t call victory early, that we don’t shy away from making changes we need to make,” he said.

He called out “well publicised difficult market conditions,” with widespread discounting by competitors.

British retailers failed to increase their Christmas sales for the first time since the depths of the global financial crisis a decade ago, industry data, also published on Thursday, showed.

Retail stocks have been rattled by signs of a slowdown in spending amid uncertainty whether the country will manage an orderly withdrawal from the European Union in less than three months’ time.

A shift in consumer spending towards experiences and away from clothing, as well as unhelpful weather, have also hampered M&S’ revival efforts.

Prior to Thursday’s update, analysts’ average forecast was for M&S to make pretax profit before one off items of 523 million pounds ($666 million) in the year to the end of March, down from 580.9 million pounds in 2017-18. That would be a third straight year of decline, with a fourth forecast for 2019-20.

“We expect M&S’ cashflow profile to remain robust, which should support its dividend, however we now think it will take longer to turn around its key food business,” said RBC Europe analyst Richard Chamberlain, who has a “sector perform” rating.